-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, N327w4IE/cZm/boB+jMigIKpEVp03JL5YesdKusNDIxM+QIaJl5Vl9j7CfFp5nHU g+7fTe+NRR6FRu+gh1ZaKQ== 0000950007-95-000094.txt : 199507050000950007-95-000094.hdr.sgml : 19950705 ACCESSION NUMBER: 0000950007-95-000094 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19950430 FILED AS OF DATE: 19950703 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: BLANCHARD FUNDS CENTRAL INDEX KEY: 0000789289 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 133333918 STATE OF INCORPORATION: MA FISCAL YEAR END: 0430 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-04579 FILM NUMBER: 95551856 BUSINESS ADDRESS: STREET 1: 41 MADSON AVE 24TH FL CITY: NEW YORK STATE: NY ZIP: 10010 BUSINESS PHONE: 2127797979 MAIL ADDRESS: STREET 1: 41 MADISON AVENUE 24TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10010 FORMER COMPANY: FORMER CONFORMED NAME: BLANCHARD STRATEGIC GROWTH FUND DATE OF NAME CHANGE: 19901225 N-30D 1 ANNUAL REPORT Dear Shareholders, Enclosed please find the annual report on the performance of your Blanchard Short-Term Global Income Fund for the fiscal year ending April 30, 1995, as well as the current outlook for the markets in which it has the flexibility to invest. As you know, 1994 was a particularly challenging year for fixed income investors, primarily because of two key market trends: First, global bond yields moved sharply higher in response to the re-emergence of economic growth throughout the developed world; second, the U.S. Federal Reserve returned to a policy of monetary tightening. In response to these trends, your Fund took a more cautious stance by reducing its exposure to short-dated bonds and increasing its exposure to cash deposits. Additionally, in an effort to increase overall yield, the Fund also took a small 5% position in the Mexican peso. However, this particular strategy suffered when the Mexican government unexpectedly devalued its currency in December. Exposure to "emerging markets" has since been reduced to zero. On a more positive note, since the beginning of 1995, there has been a marked change in investor sentiment for global bonds as investors have begun to realize that the threat of inflation may be misplaced. This realization has coincided with some evidence that the pace of economic expansion in the United States is slowing. While we still believe that there could be some pick-up in inflationary pressures, we feel that U.S. bond yields may have The following information was reprint as a line graph. The Value of a $10,000 Investment in the Blanchard Short-Term Global Income Fund from inception 1/8/91 through 4/30/95 as compared to the J.P. Morgan Cash Index for the same period ----------------------------------------- Avg. Annual Returns through 4/30/95 Blanchard Short-Term Global Income Fund* ----------------------------------------- 1 year -1.45% since inception 3.36% ----------------------------------------- FYE 4/30/91 FYE 4/30/92 FYE 4/30/93 FYE 4/30/94 FYE 4/30/95 STGF 2.15% 5.85% 4.97% 3.12% -1.45% J.P.M. CASH IDX 3.18% 8.17% 5.76% 2.68% 5.65% $9,925 $10,138 $10.731 $11.262 $11,613 $11,445 $10,000 $10,318 $11,161 $11,804 $12,120 $12,805 Reflects deduction of $75 acct opening fee Blanchard J.P. Morgan Short-Term Global Cash Income Fund^ Index(D) *The average annual returns quoted above do not reflect reinvestment of distributions, but do not reflect the deduction of the one-time account opening fee. If reflected, the returns would be lower. The total return includes changes in principal value. The average annual return is total return annualized and compounded. Past performance is no guarantee of future results. (D)Source: J.P. Morgan Cash Index is an unmanaged index based on the cash returns of constant maturity euro-currency deposits. ^Reflects deduction of one-time-only $75 account opening fee. This chart is for comparative purposes only and is not intended to reflect on future performance of the index or the BSTGIF. (over, please) further to fall as investors have yet to fully adjust to the fact that inflation is turning out to be lower than they had feared. Because of this, we, as managers of the portfolio, have decided to switch a vast majority of the Fund's assets into U.S. dollar denominated bonds _ while maintaining an exposure to European bonds (currently 30% of the Fund's total assets) in the core markets of Germany and Holland. There are some inflationary signs in Germany, but, as with the United States, these signs are limited. Any indication that the economy is slowing in Germany is likely to be well received by the bond markets and may exert a negative effect on German inflation. The Fund also has a small exposure to U.K. bonds, where we believe that investors have underestimated the resolve of the Bank of England and the government to control inflation. A Look Ahead Looking ahead, economic growth seems secure in most countries, although it is likely to decelerate somewhat in the United States as 1995 progresses. While past performance is no guarantee of future performance, the evidence so far suggests that the disinflationary trends of the 1980s have been sufficiently powerful to prevent a resurgence of inflation. Assuming any eventual upturn in inflation is modest in scale, the prevailing nominal bond yields throughout the world currently offer attractive value. Nevertheless, central banks will need to remain vigilant in order to convince investors that they will continue to take no risks with inflation. On our part, we will continue to closely monitor global interest rate and economic conditions, and, as warranted, make any necessary portfolio adjustments in pursuit of maximum return at lowest risk. Sincerely, RM:ml Robert McHenry Assistant Director Lombard Odier International Portfolio Management Ltd. Portfolio Managers of the Blanchard Short-Term Global Income Fund Distributed by Sheffield Investments, Inc. (1551) 03ARSL0695 BLANCHARD SHORT-TERM GLOBAL INCOME FUND-PORTFOLIO OF INVESTMENTS APRIL 30, 1995 (Left Column) Principal Value --------- ----- FOREIGN FIXED INCOME (26.34%) GERMANY (7.10%) GOVERNMENT/AGENCY (7.10%) Allemagne 6.63%, 1/20/98 ..... Dem 17,500,000 $ 12,887,568 Treuhandanat 6.13%, 6/25/98 ..... 5,100,000 3,703,978 ------------ TOTAL GERMANY ........ 16,591,546 ------------ NETHERLANDS (8.03%) GOVERNMENT/AGENCY (8.03%) Hollande 6.25%, 7/15/98 ..... Nlg 29,000,000 18,790,416 ------------ UNITED KINGDOM (11.21%) FINANCIAL SERVICES (5.99%) Abbey National 7.75%, 6/23/98 ..... (PS)1,000,000 1,574,870 Abbey National 6.0%, 8/10/99 ...... 2,225,000 3,242,286 Bayerische Hypotheken 7.0%, 12/21/98 ... 1,000,000 1,530,620 Halifax 7.75%, 12/03/98 .... 2,000,000 3,113,535 Leeds Permanent 7.38%, 5/06/98 ..... 830,000 1,285,440 Lloyds Bank 10.25%, 3/11/98 .... 1,000,000 1,665,379 National Providence Building 8.25%, 11/04/98 .... 1,000,000 1,586,938 ------------ 13,999,068 ------------ GOVERNMENT/AGENCY (5.22%) United Kingdom Treasury 7.0%, 11/06/01 ... (PS)8,140,000 12,217,760 ------------ TOTAL UNITED KINGDOM 26,216,828 ------------ TOTAL FOREIGN FIXED INCOME (IDENTIFIED COST $61,998,519) .... 61,598,790 ------------ U.S. FIXED INCOME (65.15%) AIRLINES (1.40%) *United Airlines Inc. Series A 10.67%, 5/01/04 ..... $3,000,000 3,268,370 ------------ COMPUTERS & RELATED (2.79%) Comdisco Inc. 7.25%, 4/15/98 ..... 5,000,000 4,998,800 Unisys Corp. Sr. Note 9.75%, 9/15/96 ..... 1,000,000 1,026,446 Unisys Corp. 9.5%, 7/15/98 ...... 500,000 500,750 ------------ 6,525,996 ------------ (Right Column) Principal Value --------- ----- CONSUMER RELATED (1.94%) RJR Nabisco 8.75%, 8/15/05 ..... $ 2,000,000 $ 1,942,688 Valassis Inserts 9.38%, 3/15/99 ..... 2,500,000 2,592,003 ------------ 4,534,691 ------------ ELECTRICAL UTILITIES (2.24%) Long Island Lighting 7.3%, 7/15/99 ...... 2,750,000 2,603,736 Niagara Mohawk Power Corp. 9.95%, 6/01/00 ..... 2,500,000 2,632,675 ------------ 5,236,411 ------------ ENTERTAINMENT (2.27%) Caesar's World Inc. Sr. Sub Notes 8.88%, 8/15/02 ..... 2,000,000 2,065,000 Time Warner Entertainment Co. 9.63%, 5/01/02 ..... 3,000,000 3,245,991 ------------ 5,310,991 ------------ FINANCIAL SERVICES (33.40%) Advanta MTC Series 1995 7.82%, 8/25/03 ..... 5,000,000 4,996,875 CMC Securities Corp. 1993 7.5%, 02/25/23 ........... 3,211,457 3,193,376 Chrysler Financial MTN 7.44%, 10/20/97 .... 5,000,000 5,013,220 Contimortage 1995-1 8.75%, 4/15/07 ..... 5,802,456 5,894,933 Dean Witter Discover & Co. 6.0%, 3/01/98 ...... 5,000,000 4,855,365 Discover Credit Corp. MTN 7.76%, 5/13/97 ..... 10,275,000 10,394,180 Ford Motor Credit Corp. 5.32%, 9/15/98 ..... 5,000,000 4,716,200 General Electric Capital Mtg. 1992 7.5%, 11/25/18 ..... 5,686,741 5,681,406 General Motors Acceptance Corp. 1993 B A 4.0%, 9/15/98 ...... 4,642,955 4,537,932 Groupe Videotron 10.63%, 2/15/05 .... 2,500,000 2,612,500 International Business Machines Credit 7.4%, 1/19/96 ...... 6,000,000 6,035,352 Lehman Brothers Hldg. MTN 8.63%, 2/26/99 ..... 5,000,000 5,104,805 Merrill Lynch Mtge. Inv. 1990 9.2%, 1/15/11 ...... 2,470,391 2,566,465 3 BLANCHARD SHORT-TERM GLOBAL INCOME FUND-PORTFOLIO OF INVESTMENTS (continued) APRIL 30, 1995 (Left Column) Principal Value --------- ----- (e)(D)New American Capital 7.69%, 7/12/95 ... $ 7,500,000 $ 7,500,000 Money Store Series 1995-A 8.0%, 9/15/05 .... 4,962,460 4,999,679 ------------ 78,102,288 ------------ GOVERNMENT/AGENCY (17.51%) Government National Mortgage Association, 9.5%, 12/15/21 ..... 5,000,000 5,262,500 (b)Resolution Trust Corp. 5.33%, 9/25/21 ..... 6,795,834 6,583,465 (b)Resolution Trust Corp. 5.83%, 9/25/19 ..... 3,559,951 3,453,152 Resolution Trust Corp. 5.9%, 7/25/23 ...... 2,728,754 2,701,466 (b)Resolution Trust Corp. 5.97%, 5/25/21 ..... 2,106,119 2,042,936 (b)Resolution Trust Corp. 6.98%, 3/25/22 .. 2,093,821 2,088,586 (b)Resolution Trust Corp. 7.32%, 11/25/25 .... 2,340,164 2,305,062 Resolution Trust Corp. 7.75%, 12/25/18 .... 6,456,497 6,424,214 Resolution Trust Corp. 7.87%, 9/25/29 ..... 3,886,383 3,879,096 (b)Resolution Trust Corp. 8.15%, 1/25/21 ..... 3,931,403 3,975,631 (b)Resolution Trust Corp. 8.77%, 3/25/21 ..... 937,699 937,230 Resolution Trust Corp. 8.8%, 8/25/23 ...... 1,273,000 1,303,234 ------------ 40,956,572 ------------ HOTELS (1.06%) Embassy Suites 8.75%, 03/15/00 ..... 2,500,000 2,487,500 ------------ INDUSTRY RELATED (1.81%) Oryx Energy Co. 9.75%, 9/15/98 ...... 2,500,000 2,521,875 (c)USX Corp. Subordinated Debenture 5.75%, 7/01/01 ..... 2,000,000 1,725,000 ------------ 4,246,875 ------------ (Right Column) Principal Value --------- ----- UTILITIES (.73%) Arkla Inc. 8.88%, 7/15/99 ..... $ 1,650,000 $ 1,699,106 ------------ TOTAL U.S. FIXED INCOME (IDENTIFIED COST $151,395,894) ........ 152,368,800 ------------ SHORT-TERM SECURITIES (6.40%) American Express Credit Corp. 5.7%, 5/01/95 ........ 1,000,000 1,000,000 Salomon Inc 5.91%, 9/29/95 ....... 5,000,000 4,976,730 U.S. Treasury Bill 4.56%, 5/04/95 ....... 9,000,000 8,995,800 ------------ TOTAL SHORT-TERM SECURITIES (IDENTIFIED COST $14,975,006) ......... 14,972,530 ------------ OUTSTANDING OPTIONS PURCHASED (0.03%) PUT OPTIONS Contracts --------- Euro$ Future expiring 9/18/95 @ $93.50 (d) ......... 150 75,000 ------------ TOTAL OUTSTANDING OPTIONS PURCHASED (IDENTIFIED COST $72,376) ........ 75,000 ------------ TOTAL INVESTMENTS (IDENTIFIED COST $228,441,795)(a) (97.92%) ............. 229,015,120 CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES (2.08%) .............. 4,854,328 ------------ NET ASSETS (100%) ............... $233,869,448 ------------ *Securities partially segregated to collateralize forward currency contracts and options. Total market value segregated is $1,089,457. (D)Registered under SEC rule 144-A, resale restricted as to qualified institutional buyers; represents 3.21% of net assets. (a)The aggregate cost for federal income tax purposes is $228,444,420; the gross unrealized appreciation is $1,248,009; and the unrealized depreciation is $676,863; resulting in net unrealized appreciation of $571,146. (b)Variable rate security. Rate shown reflects the current rate as of April 30, 1995. (c)Convertible security. (d)Non-income producing. (e)Pays interest at LIBOR plus 137.5 basis points until July 12, 1995. After July 12, 1995 the rate resets to 7.69%. MTN = Medium Term Note See notes to financial statements. 4 BLANCHARD SHORT-TERM GLOBAL INCOME FUND-PORTFOLIO OF INVESTMENTS (continued) APRIL 30, 1995 Schedule of Open Forward Currency Contracts as of April 30, 1995 Unrealized Currency Currency Appreciation Sold Amount Purchased Amount Delivery Date (Depreciation) Dem 27,281,492 Nlg 30,561,000 2-May-95 $(21,420) Dem 20,246,000 Gbp 9,115,714 4-May-95 76,039 Dem 18,092,800 Itl 22,368,128,640 10-May-95 270,545 Itl 28,349,000,000 Dem 25,415,766 10-May-95 1,494,739 US$ 7,904,785 Jpy 778,400,000 10-May-95 1,371,578 US$ 10,000,000 Esp 1,289,950,000 10-May-95 471,053 US$ 24,600,661 Esp 3,075,082,650 10-May-95 385,791 ----------- Total Unrealized Appreciation $(4,091,165) =========== Nlg 30,561,000 Dem 27,281,735 10-May-95 $ (21,246) Gbp 7,490,400 US$ 11,879,774 10-May-95 (171,000) US$ 10,000,000 Aud 13,747,594 10-May-95 (1,822) US$ 15,000,000 Aud 20,270,270 10-May-95 (258,092) US$ 9,785,787 Aud 13,241,931 10-May-95 (147,651) Dem 48,433,000 US$ 34,643,997 10-May-95 (292,382) Itl 29,710,219,600 US$ 17,099,407 10-May-95 (547,643) Aud 45,976,000 US$ 33,333,979 10-May-95 (102,868) Dem 29,903,730 Itl 31,967,087,370 10-May-95 (2,583,016) Jpy 778,400,000 US$ 7,942,047 10-May-95 (1,334,316) Esp 4,461,200,000 US$ 34,348,630 10-May-95 (1,864,761) Gbp 9,170,090 Dem 20,246,000 4-Aug-95 (107,629) ----------- Total Unrealized Depreciation $(7,432,426) =========== Dem=Deutsche Marks Nlg=Dutch Guilders Esp=Spanish Pesetas Itl=Italian Lira Gbp=British Pounds Aud= Australian Dollars Jpy=Japanese Yen Schedule of Foreign Currency Held as of April 30, 1995 Currency Held Cost Market Value ------------- ---- ------------ Australian Dollars 138,898 $ 101,097 $ 101,097 British Pounds 45 73 73 Deutsche Marks 1,101 793 793 Italian Lira 5,162,758,058 3,032,897 3,072,156 Spanish Pesetas 17,655,177 143,456 143,456 ---------- ---------- $3,278,316 $3,317,575 ========== ========== See notes to financial statements. 5 BLANCHARD SHORT-TERM GLOBAL INCOME FUND (Left Column) STATEMENT OF ASSETS AND LIABILITIES April 30, 1995 Assets: Investments in securities, at value (Identified cost $228,441,795) (note 1) ................... $229,015,120 Cash ............................................ 2,426,706 Foreign currencies (Identified Cost $3,278,316) ..................................... 3,317,575 Receivables for: Investments sold .............................. 50,513,648 Shares of beneficial interest sold ............ 72,379 Interest ...................................... 3,600,873 Forward foreign currency contracts ............ 4,091,165 Deferred organizational expenses ............ 25,860 ------------ Total assets ............................ 293,063,326 ------------ Liabilities: Payables for: Shares of beneficial interest repurchased ................................. 761,158 Investments purchased ......................... 50,456,095 Dividends ..................................... 184,269 Forward foreign currency contracts ............ 7,432,426 Accrued expenses and other liabilities .......... 359,930 ------------ Total liabilities ....................... 59,193,878 ------------ Net assets .............................. $233,869,448 ============ Net assets are comprised of: Paid in capital (unlimited authorized shares of beneficial interest, $.01 par value, 141,135,916 shares outstanding) ............... $259,231,663 Accumulated overdistributed investment income-net .................................... (12,018,933) Accumulated realized loss-net ................... (10,744,046) Unrealized net depreciation on investments, forward foreign currency contracts, options and net currency translation adjustments ................................... (2,599,236) ------------ Net assets ...................................... $233,869,448 ============ Net asset value per share ....................... $1.66 ===== (Right Column) STATEMENT OF OPERATIONS For the Year Ended April 30, 1995 Investment income: Interest (net of foreign withholding tax of $85,010) ................................. $27,791,428 ----------- Expenses: Investment manage- ment fee (note 2) .............$ 2,811,067 Plan of distribution fee (note 3) ......... 937,022 Transfer agent fees .... 779,000 Trustees' fees, retire- ment plan curtail- ment and other expenses (note 5) .... 403,258 Custodian fees ......... 337,214 Accounting fees ........ 230,000 Professional fees ...... 168,029 Shareholder reports and notices .......... 62,136 Organizational expenses (note 1) .... 26,748 Registration fees ...... 26,500 Other .................. 16,293 ----------- Total expenses ..... 5,797,267 Less: Fund expenses voluntarily waived by the Manager and Distributor .......... (182,085) 5,615,182 ----------- ----------- Net investment income ........................... 22,176,246 ----------- Realized and unrealized gain (loss) - net (note 1): Realized gain (loss) on: Investments in securities - net .......(10,489,372) Futures transac- tions - net ............ (521,197) Forward currency contracts and foreign exchange transactions - net .....(33,387,574) (44,398,143) ----------- Change in unrealized appreciation/ depreciation on: Investments - net ...... 7,167,814 Forward currency contracts, futures transactions and translation of other assets and liabilities denominated in foreign currency - net ... 8,408,763 15,576,577 ----------- ----------- Net realized and unrealized losses .................. (28,821,566) ----------- Net decrease in net assets resulting from operations ........................................ $(6,645,320) =========== See notes to financial statements. 6 BLANCHARD SHORT-TERM GLOBAL INCOME FUND STATEMENT OF CHANGES IN NET ASSETS
For the For the Year Ended Year Ended April 30, 1995 April 30, 1994 -------------- -------------- Increase (decrease) in net assets: Operations: Investment income - net $ 22,176,246 $ 41,432,828 Realized loss - net (44,398,143) (15,128,722) Change in unrealized appreciation or depreciation - net 15,576,577 (4,248,674) ------------ ------------ Net increase (decrease) in net assets resulting from operations (6,645,320) 22,055,432 ------------ ------------ Dividends and distributions to shareholders from: Investment income - net - (3,616,387) Tax return of capital (22,509,967) (37,657,313) ------------ ------------ (22,509,967) (41,273,700) Transactions in shares of beneficial interest - net decrease (note 6) (272,116,356) (144,823,458) ------------ ------------ Net decrease in net assets (301,271,643) (164,041,726) Net assets: Beginning of year 535,141,091 699,182,817 ------------ ------------ End of year (including accumulated overdistributed net investment income of $12,018,933 and $18,495,810, respectively) $233,869,448 $535,141,091 ============ ============
See notes to financial statements. 7 BLANCHARD SHORT-TERM GLOBAL INCOME FUND NOTES TO FINANCIAL STATEMENTS April 30, 1995 NOTE 1 - Organization and Accounting Policies: Blanchard Short-Term Global Income Fund (the "Fund") is a series of Blanchard Funds which was organized as a Massachusetts business trust on January 24, 1986. The Fund is a registered, open-end non-diversified management investment company under the Investment Company Act of 1940, as amended ("the Act"). The Fund had no operations before January 8, 1991 other than the sale of shares of beneficial interest to four parties who are also shareholders of Sheffield Management Company (the "Manager"). The following is a summary of the significant accounting policies followed by the Fund: A. Valuation of Investments-Portfolio securities traded on domestic or foreign exchanges are valued at the 4 PM EST price on that date, or if no sale is made on that day, at the closing bid price (or the mean price in cases where a mean is reported instead of the closing bid). In cases where a security is traded on more than one exchange, it is valued at the quotation on the exchange determined to be the primary market for such security by the Trustees or the Manager. All other portfolio securities for which over-the-counter market quotations are readily available are valued at the latest available bid prices. Short-term debt securities which mature in 60 days or less are valued at amortized cost if their original maturity was 60 days or less. Short-term debt securities having a maturity date of more than sixty days at the time of purchase are valued on a mark to market basis until sixty days prior to maturity and thereafter at amortized cost based on their value on the 61st day. All other securities and other assets of the Fund are valued at fair value as determined in good faith by the Trustees. Foreign currency exchange rates are determined when such rates are made available to the Fund at times prior to the close of the New York Stock Exchange. The abilities of the issuers of debt securities held by the Fund to meet their obligations may be affected by economic or political developments in a particular country. B. Accounting for Investments-Security transactions are accounted for on the trade date (date the buy or sell order is executed). Realized gains and losses on security transactions are determined on the identified cost method. Interest income is accrued daily. Premiums or discounts on debt securities are amortized or accreted as adjustments to interest income over the lives of such securities. C. Foreign Currency Contracts & Translation-The books and records of the Fund are maintained in U.S. dollars as follows: (1) the foreign currency market value of investment securities, forward currency contracts, and other assets and liabilities denominated in foreign currencies are translated at the exchange rates at the end of the period; and (2) purchases, sales, income and expenses are translated at the rates of exchange prevailing on the respective dates of such transactions. The Fund does not separately identify that portion of the results of operations of the Fund that arise as a result of changes in the exchange rates from the fluctuations that arise from changes in market prices of equity investments during the year. However, in accordance with the requirements of the Internal Revenue Code, the Fund isolates the effect of changes in foreign exchange rates from the fluctuations arising from changes in market prices of foreign debt obligations sold, and such net foreign exchange gains, which amounted to $2,904,998, are included in ordinary income for federal income tax purposes and in realized gain (loss) on forward currency contracts and foreign exchange transactions-net in the Statement of Operations. Foreign security and currency transactions may involve certain considerations and risks not typically associated with those of domestic origin as a result of, among other factors, level of governmental supervision and regulation of foreign securities markets and the possibility of political or economic instability. 8 BLANCHARD SHORT-TERM GLOBAL INCOME FUND NOTES TO FINANCIAL STATEMENTS (continued) The Fund may enter into forward currency contracts to protect the U.S. dollar value of securities and related receivables and payables against changes in future exchange rates. Forward currency contracts are valued based upon the current forward rates. Fluctuations in the value of such contracts are recorded as unrealized gains or losses; realized gains or losses include net gains or losses on contracts which have settled. The Fund generally enters into a forward currency contract as a hedge against foreign exchange rate fluctuation, upon the purchase or sale of a security denominated in a foreign currency. The Fund maintains, as collateral, U.S. Government or other highly liquid debt obligations in an amount equal to or greater than its net obligation for forward currency contracts. The Fund bears the risk of an unfavorable change in the foreign exchange rate underlying the forward contracts. Risks may also arise as a result of the potential inability of the counterparties to meet the terms of their contracts. Forward contracts involve elements of market risk in excess of the amount reflected in the Statement of Assets and Liabilities. D. Futures Contracts-A futures contract is an agreement between two parties to buy and sell a security at a set price on a future date. Upon entering into such a contract the Fund is required to pledge to the broker an amount of cash equal to the minimum "initial margin" requirement of the exchange on which the futures contract is traded. The contract amount reflects the extent of the Fund's exposure in these financial instruments. The Fund invests in futures contracts in order to hedge its existing portfolio securities against fluctuations in value caused by changes in prevailing interest rates. The Fund's participation in the futures markets involves certain risks, including the potential inability of the contract party to meet the terms of the contracts, imperfect correlation between movements in the price of futures contracts and movements in the price of securities hedged or used for cover. Should interest rates move unexpectedly, the Fund may not achieve the anticipated benefits of the futures contracts and may realize a loss. Pursuant to a contract, the Fund agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in value of the contract. Such receipts or payments are known as "variation margin" and are recorded by the Fund as unrealized appreciation or depreciation. The Fund maintains, as collateral, U.S. Government or other highly liquid debt obligations in an amount equal to or greater than its potential loss on futures contracts. When a contract is closed, the Fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. E. Option Writing-When the Fund writes an option, an amount equal to the premium received by the Fund is recorded as a liability and is subsequently adjusted to the current market value of the option written. Premiums received from writing options which expire unexercised are treated by the Fund on the expiration date as realized gains. The difference between the premium and the amount paid on effecting a closing purchase transaction, including brokerage commissions, is also treated as a realized gain, or if the premium is less than the amount paid for the closing purchase transaction, as a realized loss. If a call option is exercised, the premium is added to the proceeds from the sale of the underlying security or currency in determining whether the Fund has realized a gain or loss. If a put option is exercised, the premium reduces the cost basis of the securities or currencies purchased by the Fund. The Fund as writer of an option may have no control over whether the underlying securities or currencies may be sold (called) or purchased (put) and as a result bears the market risk of an unfavorable change in the price of the security or currency underlying the written option. F. Federal Income Tax Status-It is the Fund's policy to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its taxable income to its shareholders. Accordingly, no federal income tax provision is required. 9 BLANCHARD SHORT-TERM GLOBAL INCOME FUND NOTES TO FINANCIAL STATEMENTS (continued) G. Dividends and Distributions to Shareholders-The Fund records dividends and distributions to its shareholders on the record date. The amount of dividends and distributions from net investment income and net realized capital gains are determined in accordance with federal income tax regulations which may differ from generally accepted accounting principles. These "book/tax" differences are either considered temporary or permanent in nature. To the extent these differences are permanent in nature, such amounts are reclassified within the capital accounts based on their federal tax-basis treatment; temporary differences do not require reclassification. Dividends and distributions which exceed net investment income and net realized capital gains for financial reporting purposes but not for tax purposes are reported as dividends in excess of net investment income or distributions in excess of net realized capital gains. To the extent they exceed net investment income and net realized capital gains for tax purposes, they are reported as distributions of paid-in capital. H. Organizational Expenses-The Fund's Manager paid the organizational expenses of the Fund incurred prior to the public offering of its shares amounting to approximately $133,706. The Fund has reimbursed the Manager for such expenses and deferred and is amortizing such expenses over five years from the date of commencement of the Fund's operations. I. Other-Certain expenses of the Blanchard Funds are allocated among the funds based upon their relative average net assets. NOTE 2 - Investment Management Agreement: Pursuant to a management agreement (the "Agreement"), the Manager manages the Fund and the investment of the Fund's assets, subject at all times to the supervision of the Fund's Trustees. In addition to providing overall business management and administrative services, the Manager selects, monitors and evaluates the Portfolio Adviser described below. The Manager receives from the Fund an advisory fee payable monthly at an annual rate of .75% of the Fund's average daily net assets. Expenses of the Fund, exclusive of taxes, interest, brokerage commissions, distribution fees, extraordinary expenses and certain other excludable expenses, are subject to the expense limitation imposed by one of the states in which shares of the Fund are offered for sale. For the year ended April 30, 1995, the Fund's expenses did not exceed the above limitation. Certain officers and/or Trustees of the Fund are officers/directors of the Manager. The Manager has a sub-advisory agreement with Lombard Odier International Portfolio Management Limited (the "Portfolio Adviser"). The Manager has advised the Fund that the amount of fees paid to the Portfolio Adviser was $612,384 for the year ended April 30, 1995. The Manager and Distributor voluntarily waived a portion of the advisory and distribution fee, which amounted to $146,844 and $35,241, respectively, for the year ended April 30, 1995. NOTE 3 - Distribution Agreement and Plan: Pursuant to a Distribution Agreement, Sheffield Investments, Inc. (the "Distributor"), an affiliated company of the Manager, acts as principal distributor of the Fund's shares. The Distributor has the exclusive right to distribute Fund shares directly or through other broker-dealers. The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the Act which provides that the Fund may finance activities which are primarily intended to result in the sale of the Fund's shares, 10 BLANCHARD SHORT-TERM GLOBAL INCOME FUND NOTES TO FINANCIAL STATEMENTS (continued) including but not limited to advertising, printing of prospectuses and reports for other than existing shareholders, preparation and distribution of advertising material and sales literature, and payments to dealer and shareholder servicing agents who enter into agreements with the Manager or Distributor. Pursuant to the Plan, the Fund may pay distribution fees not to exceed .25% per annum of the Fund's average daily net assets. Provided that the Plan continues in effect, any cumulative expenses incurred by the Distributor, but not yet reimbursed by the Fund, may be reimbursed through future distribution fees from the Fund. The Distributor has advised the Fund that at April 30, 1995, the unreimbursed distribution expenses amounted to $497,152. If the Plan is terminated or discontinued in accordance with its terms, the obligation of the Fund to make payments to the Distributor pursuant to the Plan will cease and the Fund will not be required to make any payments past the date the Plan is terminated. NOTE 4 - Acquisition Agreement: Sheffield Management Company (the "Manager") and Sheffield Investments, Inc. (the "Distributor"), have entered into an acquisition agreement (the "Acquisition Agreement") with Signet Banking Corporation and two of its subsidiaries("Signet"), dated February 15, 1995, pursuant to which Sheffield will sell to Signet assets relating to, and the ability to succeed to contracts with, the Blanchard Funds, including Blanchard Short-Term Global Income Fund (collectively, the "Funds"). The transactions contemplated by the Acquisition Agreement which have been approved by the Board of Trustees of the Funds are conditioned upon the approval of the shareholders of each Fund, of (1) a new investment management agreement with Signet, (2) a new distribution agreement with Federated Securities Corp., and (3) certain other conditions. No material changes are contemplated in the operation of the Funds and no management or distribution and administration fee increases are being proposed. NOTE 5 - Security Transactions and Transactions with Affiliates: Purchases and sales of portfolio securities of the year ended April 30, 1995, excluding short-term investments with maturities of less than one year at the time of purchase, aggregated $652,051,381 and $719,145,194, respectively, including purchases and sales of U.S. Government obligations of $66,275,242 and $5,226,497, respectively. The Distributor has advised the Fund that it received $11,700 from shareholders as account opening fees for the year ended April 30, 1995. The Manager has advised the Fund that, for the same period, it incurred costs amounting to $195,996, which were reimbursed by the Fund, for performing internal accounting and transfer agency functions for the Fund. Transactions in options written during the year ended April 30, 1995, were as follows:
Number of Premiums Contracts Received --------- -------- Written options outstanding at April 30, 1994 ....................... 601 $ 304,257 Options written ..................................................... 2,155 893,630 Options expired or terminated in closing purchase transactions ...... (2,756) (1,197,887) ------ ---------- Options outstanding at April 30, 1995 ............................... 0 $ 0 ====== ==========
11 BLANCHARD SHORT-TERM GLOBAL INCOME FUND NOTES TO FINANCIAL STATEMENTS (continued) The Funds have adopted an unfunded noncontributory pension plan (the "Plan") covering all independent directors/trustees of the Funds who will have served as an independent director/trustee for at least five years at the time of retirement. Benefits under this plan are based on an annual amount equal to 75% of the director/trustee fee at the time of retirement, plus 5% for each year of service in excess of five years of service but not in excess of ten years of service. Net periodic pension expenses included in Trustees' fees, retirement plan curtailment and other expenses in the Statement of Operations for the year ended April 30, 1995 was $73,214. As indicated in Note 4, the Manager has entered into an agreement which provides for the acquisition of the Manager by Signet. Following the acquisition, the independent directors/trustees of the Funds will not stand for re-election. As a result, the Plan was curtailed and additional pension expense of $277,539 was recorded to reflect the previously unrecognized prior service costs of the independent directors/trustees. Included in accrued expenses and other liabilities at April 30, 1995 is $350,753 of accrued pension expense. NOTE 6 - Shares of Beneficial Interest:
For the Year Ended For the Year Ended April 30, 1995 April 30, 1994 -------------- -------------- Shares Amount Shares Amount ------ ------ ------ ------ Sold ...................... 46,167,838 $ 80,352,297 160,419,084 (298,532,697 Reinvestment of dividends . 10,834,258 18,687,481 20,537,136 38,161,388 ------------ ------------- ----------- ------------- 57,002,096 99,039,778 180,956,220 336,694,085 Repurchased ............... (214,657,986) (371,156,134) (259,498,407) (481,517,543) ------------ ------------- ----------- ------------- Net decrease .............. (157,655,890) $(272,116,356) (78,542,187) $(144,823,458) ============ ============= =========== =============
NOTE 7 - Federal Income Taxes Capital and foreign currency losses incurred after October 31 ("post-October losses") within the taxable year are deemed to arise on the first business day of the Fund's next taxable year. The Fund incurred and will elect to defer net capital and foreign currency losses of approximately $3,036,000 and $13,924,000, respectively during fiscal 1995. As of April 30, 1995, the Fund had temporary book/tax differences primarily attributable to post-October loss deferrals and non-deductible expenses. The Fund had permanent book/tax differences primarily attributable to foreign currency losses. To reflect reclassifications arising from permanent book/tax differences for the year ended April 30, 1995, paid-in-capital was charged $40,341,564, accumulated realized loss-net was credited $33,530,966 and accumulated overdistributed investment income-net was credited $6,810,598. At April 30, 1995 the Fund had a net capital loss carryover of $7,705,131 which is available through April 30, 2003 to offset future capital gains. To the extent that these carryover losses are used to offset future capital gains, it is probable that the gains so offset will not be distributed to shareholders. 12 BLANCHARD SHORT-TERM GLOBAL INCOME FUND NOTES TO FINANCIAL STATEMENTS (continued) NOTE 8 - Financial Highlights: Selected ratios and per share data for a share of beneficial interest outstanding:
For the Period January 8, 1991* For the Year Ended April 30, through 1995 1994 1993 1992 April 30, 1991 ---- ---- ---- ---- -------------- Per Share Operating Performance: Net asset value, beginning of period . $1.79 $1.85 $1.89 $1.95 $1.97 Income from investment operations: Net investment income .............. .10(D) .12 .13 .17 .06 Net gains or losses on investments (both realized and unrealized) ... (.07)(D) (.06) (.04) (.06) (.02) Net income (loss) from investment operations ... (.03) .06 .09 .11 .04 Less dividends and distributions: Dividends from investment income - net ..................... -- (.01) (.13) (.17) (.06) Tax return of capital .............. (.10) (.11) .00 .00 .00 Change in net asset value ...... (.13) (.06) (.04) (.06) (.02) Net asset value, end of period ....... $1.66 $1.79 $1.85 $1.89 $1.95 Total return .........................(1.45%) 3.12% 4.94% 5.85% 2.15%(3) Ratios/Supplemental Data: Net assets, end of period ($ Millions) ....................... $234 $535 $699 $1,241 $230 Ratio of expenses to average net assets ......................... 1.51%(2) 1.44% 1.44%(2) 1.32%(2) .38%(1)(2) Ratio of net investment income to average net assets ................. 5.95%(2) 6.41% 6.97%(2) 8.50%(2) 11.30%(1)(2) Portfolio turnover ................... 386% 327% 610% 412% 63%
- ------------ *Commencement of operations. (1)Annualized. (2)The ratios of expenses to average net assets and net investment income to average net assets would have been 1.56% and 5.90%, respectively, for the year ended April 30, 1995, unchanged for the year ended April 30, 1993, 1.41% and 8.41%, respectively, for the year ended April 30,1992 and 2.23% and 9.45%, respectively, for the period ended April 30, 1991 if the management and distribution fees had not been waived and with respect to the period ended April 30, 1991, other expenses had not been borne by the Manager. (3)Not annualized. (D)Calculated based on average shares outstanding. 13 BLANCHARD SHORT-TERM GLOBAL INCOME FUND REPORT OF INDEPENDENT ACCOUNTANTS To the Trustees and Shareholders of Blanchard Short-Term Global Income Fund In our opinion, the accompanying statement of assets and liabilities, including the portfolio of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Blanchard Short-Term Global Income Fund (the "Fund") at April 30, 1995, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the four years in the period then ended and for the period January 8, 1991 (commencement of operations) through April 30, 1991, in conformity with generally accepted accounting principles. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Fund's management; our responsibility is to express an opinion on these financial statement based on our audits. We conducted our audits of these financial statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at April 30, 1995 by correspondence with the custodian and brokers and the application of alternative auditing procedures where confirmations from brokers were not received, provide a reasonable basis for the opinion expressed above. PRICE WATERHOUSE LLP 1177 Avenue of the Americas New York, New York 10036 June 20, 1995 14 (Left Column) Portfolio Advisers Lombard Odier International Portfolio Mgt. Ltd. WLO Global Management Custodian and Transfer Agent United States Trust Company of New York Independent Accountants Price Waterhouse LLP Legal Counsel Kramer, Levin, Naftalis, Nessen, Kamin & Frankel Blanchard Short-Term Global Income Fund 41 Madison Ave., 24th Floor New York, NY 10010-2267 (Right Column) Blanchard Short-Term Global Income Fund Annual Report April 30, 1995 Managed by: Sheffield Management Company 41 Madison Ave., 24th Floor New York, NY 10010-2267 1-800-922-7771 -----END PRIVACY-ENHANCED MESSAGE-----